Dilosk, the parent group of nonbank lender ICS Mortgages, posted a 75 per cent slump in net interest income in 2023 as its funding costs spiralled on international markets and the company reined in new lending.
The group’s net interest income fell to €4.37 million for the year, according to its most recent set of annual accounts, published by the Companies Registration Office (CRO) on Monday – laying bare the financial impact on nonbank lenders as interest rates spiked.
While Dilosk, led by chief executive Fergal McGrath, posted an almost €6 million operating profit for the year, its plunged into a net loss of €23.5 million following a revaluation of derivative financial instruments used to hedge its exposure to interest rate risks. This followed a “supernormal” profit of €84.9 million for 2022 as a result of a favourable valuation of these instruments.
“While new origination [lending] volumes remained low, largely as a result of the elevated interest rate environment, the directors are pleased to note the continued underlying profitability of the group,” said Dilosk in the report.
“The supernormal profits recognised in the prior year, as a result of the valuation gains recognised on hedging instruments to which hedge accounting is not applied, has partially reversed in the current year which is resulting in a reported loss after tax.”
The directors expect this trend to continue in future years as the value attributable to these historic positions continues to unwind and interest rate markets normalise, it added.
Dilosk, which is one-third owned by UK investment firms Attestor Capital and Chenavari, pulled back lending dramatically in the second half of 2022 by tightening up its lending criteria and raising interest rates more than mainstream banks after its own funding costs soared in the international wholesale banking and bond markets.
Banks, on the other hand, saw their net interest incomes soar in 2023 as they mainly fund their mortgage books from cheap deposits – and earned extra money on excess deposits they had lodged with the Central Bank of Ireland.
Are we at the beginning of Donald Trump’s global trade war?
Dilosk loans to customers counted on its balance sheet, including mortgages that have been refinanced on bond markets through a process known as residential mortgage-backed securities transactions, declined to €1.38 billion at the end of 2023 from €1.69 million a year earlier.
ICS rebooted its owner-occupier mortgage offering in 2024, easing what were then the most stringent lending criteria in the market and gradually lowering its interest rates, as international funding conditions eased.
Still, ICS and other pure nonbank lenders’ mortgage rates continue to generally be more expensive than mainstream banks, according to Competition and Consumer Protection Commission price comparison data.
The group also bought a portfolio of about €400 million in prime residential mortgages from Ulster Bank last year as the UK-owned lender continued to wind down its operations in the Republic.
The European Central Bank has cut its key deposit rate, a reference point for financial markets, from 4 per cent to 2.75 per cent since last June. It is expected to cut borrowing costs further over this year.
Dilosk originally filed its 2023 financial statement and annual return with the CRO in early December. However, that office only scanned them on Monday, after certain issues with the filings were resolved.
- Sign up for the Business Today newsletter and get the latest business news and commentary in your inbox every weekday morning
- Opt in to Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Join The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
